Digging into the Channels of Bunching: Evidence From the Uruguayan Income Tax

72 Pages Posted: 20 May 2019 Last revised: 16 Nov 2020

See all articles by Marcelo Bergolo

Marcelo Bergolo

Universidad de la Republica - Instituto de Economía; IZA Institute of Labor Economics

Gabriel Burdin

University of Leeds - Leeds University Business School (LUBS); IZA Institute of Labor Economics

Mauricio De Rosa

Instituto de Economía - Universidad de la República; Paris School of Economics

Matias Giaccobasso

University of California, Los Angeles (UCLA) - Anderson School of Management; Universidad de la Republica - Instituto de Economía

Martin Leites

Universidad de la República

Multiple version iconThere are 2 versions of this paper

Date Written: June 29, 2020

Abstract

Based on detailed administrative tax records, we implement a bunching design to explore
how individual taxpayers respond to personal income taxation in Uruguay. We estimate
a very modest elasticity of taxable income at the first kink point (0.06) driven by
a combination of gross labour income and deductions responses. Taxpayers use personal
deductions more intensively close to the kink point and underreport income to the tax authority.
Our results suggest that the efficiency costs of taxation are not necessarily large in
contexts characterised by limited deduction opportunities. Policy efforts should be directed
at broadening the tax base and improving enforcement capacity

Keywords: Personal Income Taxation, Tax Bunching, Elasticity of Labour Income, Deductions Behaviour, Underreporting, Developing Economies

JEL Classification: H21, H24, H30, J22

Suggested Citation

Bergolo, Marcelo and Burdin, Gabriel and De Rosa, Mauricio and Giaccobasso, Matias and Leites, Martin, Digging into the Channels of Bunching: Evidence From the Uruguayan Income Tax (June 29, 2020). Available at SSRN: https://ssrn.com/abstract=3365110 or http://dx.doi.org/10.2139/ssrn.3365110

Marcelo Bergolo

Universidad de la Republica - Instituto de Economía ( email )

Montevideo
Uruguay

HOME PAGE: http://www.iecon.ccee.edu.uy

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Gabriel Burdin

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Mauricio De Rosa

Instituto de Economía - Universidad de la República ( email )

Montevideo
Uruguay

Paris School of Economics ( email )

Paris
France

Matias Giaccobasso (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Universidad de la Republica - Instituto de Economía ( email )

Montevideo, Montevideo
Uruguay

Martin Leites

Universidad de la República ( email )

Avenida 18 de Julio 182
Montevideo, 11100
Uruguay

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